Day trading comes to London

CBS.MarketWatch.com

LONDON (CBS.MW) -- Day traders -- an Internet-addicted breed of private investors who have given new meaning to U.S. stock-market liquidity and volatility -- are about to infiltrate Britain.

On Monday, a Dallas, Texas, firm called InvestIn.com cut the ribbon for its official launch of online trading in U.S. stocks for Europeans. This in itself is somewhat novel because the only other broker offering European investors the chance to trade U.S. shares right now is Charles Schwab.

InvestIn.com, a U.S. broker-dealer that is a member of the National Association of Securities Dealers, will offer European investors a chance to trade in U.S. securities online for a fixed fee of $19.95 for up to 1,000 shares.

But perhaps far more interesting than this is news that InvestIn has quietly been offering a day-trading platform for the past six weeks through U.K. subsidiary InvestIn Securities. In October, it intends to get down to serious business when it hooks up with an as-yet-unnamed U.K. firm to launch a day-trading center.

For many market observers in Britain, news that day trading has suddenly arrived in the United Kingdom may seem vaguely curious or vaguely threatening -- whatever impressions have been formed from recent news that the NASD is looking at whether or not to regulate this upstart industry. See full story.

Truth is, many Britons have little idea of what day trading is and how it differs from online trading. In fact, few have even bothered to get hip with online trading. Countries such as Germany and France are strides ahead of Britons when it comes to trading shares over the Internet -- despite the fact that the U.K. equity market is vastly more liquid than its Continental counterparts.

For richer or poorer

Day trading, in brief, is when an individual goes in and out of one or more stock positions several times in one day, using what's known as a Level 2 direct access program. This program, hooked up to one or more U.S. stock exchanges -- typically Nasdaq -- gives the trader a broad view of all the bids and offers that market makers are maintaining at any point in time. The trader can route an order either to an electronic communication network (or ECN), broadcast an offer or bid, or lift someone else's offer or bid. Such investors typically execute from 10 to 100 trades in a given session.

At the end of the day, some come out very rich indeed from their day of gambling; others can come out anywhere from solvent to broke, depending on their skill and luck.

Online traders tend to be longer-haul investors who trade in or out of positions maybe six times a month. Online traders, like day traders, can be private individuals or brokers who also have access to online bid/offer prices. But, unlike their U.S. day-trading counterparts, U.K. online traders are limited to one or maybe a handful of market-maker bid/offer quotes for a particular stock. Barclays Stockbrokers, one exception, is beefing up and soon plans to offer clients quotes from 12 different market makers.

At the moment, though, the whole notion of online trading remains a revolutionary one in Britain -- one of the reasons it's taking "incumbents" such as Charles Schwab
SC.H, -33.33%
and Barclays so long to generate any real liquidity.

According to a new report on European online trading by J.P. Morgan, Schwab's U.K. operation year-to-date has had an estimated 14,000 Internet customers who have executed an estimated 80,000 trades so far. In other words, some 12 trades per customer.

Given the substantially heavier flows of trading volume needed for day trading, why in the world is InvestIn launching this type of business now?

Not everyone can be a Michael Jordan

British-born Laurence Briggs, president and chief executive of the Texas firm, brushed this question aside as though the thought of introducing day trading to an unschooled market were a piece of cake.

"In England, people have been trading commodities for hundreds of years. And now currency trading is dying. Trading is in the blood of English people," he insisted.

He did concede, though, that not everyone's cut out to be a successful day trader, suggesting: "Not everyone can be a Michael Jordan."

But there are certainly countless wannabe Jordans out there -- one of the reasons Briggs thinks the idea will yet fly in Europe. InvestIn, which started offering day trading stateside in March 1998, a few months after it stopped doing initial public offerings over the Internet, has been talking with parties in France, Germany and Spain about launching day trading in those countries, too. Briggs said his group is already licensed in 18 countries. "In six months, we're going to see day-trading firms all over Europe," he predicted.

Setting up offices and offering computer terminals may be one thing, but the real trick will prove to be filling the desks. Trading may well be in the blood of Britons, but so too is a historic sense of caution when it comes to testing out new ideas -- especially those from overseas -- and especially when that something new is starting to invite the attention of U.S. regulators.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.